Agricultural lending concepts
ST & LT Loans for Agriculture
Sushrut V. Sardesai
DGM / MoF
CAB, RBI, Pune
ACA-TM-37 (v2.2-20-Nov-10)
Soil / Organic
Matter
Sustainable
Institutions
Irrigation /
Soil moisture
Value
addition
Agronomy
practices
AGRICULTURE
Extension
services
Diversification
Market access
ACA-TM-37 (v2.2-20-Nov-10)
Integration of
allied
activities
Classification of Loans
• Based on purpose
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Production credit
Marketing loans
Consumption loans
Investment credit
• Based on tenure
– Short term
– Medium term
– Long term
ACA-TM-37 (v2.2-20-Nov-10)
Classification of Loans
• Based on security
– Secured loans
• Primary security
• Collateral security
– Mortgage
– Hypothecation
– Third party guarantee
– Unsecured loans
ACA-TM-37 (v2.2-20-Nov-10)
Classification of Loans
• Based on approach
–Individual approach
–Area approach
–DIR loans
ACA-TM-37 (v2.2-20-Nov-10)
Agricultural Costs
• Recurring
• Investment specific
ACA-TM-37 (v2.2-20-Nov-10)
Crop Loan System
• Cost of cultivation
• Eligibility not to depend on ownership but on
tilling of land
• Loan to be secured by hypothecation of crop
• Disbursement & recovery of loan based on crop
production schedule
• Quantum of loan based on crop variety, season
and irrigation status
• Recovery linked with marketing
ACA-TM-37 (v2.2-20-Nov-10)
Crop Loan System contd ….
• Cost of cultivation
• Scale of Finance
• DLTC
• DCC/BLBC
ACA-TM-37 (v2.2-20-Nov-10)
Tools of ST Financing
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KCC
SCC
GCC
SB-cum-OD
SHG
JLG
Farmers’ Club
ACA-TM-37 (v2.2-20-Nov-10)
Causes of poor repaying capacity
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Small land holdings
Low productivity
Low / fluctuating prices
High family expenditure / diversion of funds
for unproductive purposes
• Lack of adoption of improved technology and
modern package of practices
• Poor management of farm resources
ACA-TM-37 (v2.2-20-Nov-10)
Risk factors in Agriculture
• Production risk
• Technological risk
• Ignorance / illiteracy related risk
• Weather uncertainty risk
• Price uncertainty risk
• Farmer’s health related risk
ACA-TM-37 (v2.2-20-Nov-10)
Risk mitigation measure
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Crop insurance
Asset insurance
Health / Life insurance
Tie-ups for recovery
Marketing loans / Warehouse receipt finance
Formation of Farmers’ Clubs
JLGs / SHGs
ACA-TM-37 (v2.2-20-Nov-10)
Classification based on PSL
• Direct Agriculture
Loans to individual farmers, groups of individual farmers
[including SHGs / JLGs provided banks maintain disaggregated
data on such loans] engaged in Agri. and Allied Activities, viz.,
dairy, fishery, animal husbandry, poultry, bee-keeping and
sericulture (up to cocoon stage)
• Indirect Agriculture
Loans to corporates, partnership firms and institutions
engaged in Agriculture and Allied Activities [dairy, fishery,
animal husbandry, poultry, bee-keeping and sericulture (up to
cocoon stage)
ACA-TM-37 (v2.2-20-Nov-10)
Direct Agriculture
• Short-term loans to farmers for raising crops
• MT & LT loans for agri. and allied activities
 Purchase of agri. Impl. and machinery
 Irrigation and other dev. activities
 Allied activities
• Pre-harvest and post-harvest activities,
(viz., spraying, weeding, harvesting, sorting, grading
and transporting of their own farm produce)
• Loans up to 25 lakh against pledge / hypothecation
of agri. produce (including warehouse receipts) for a
period not exceeding 12 months.
ACA-TM-37 (v2.2-20-Nov-10)
Direct Agriculture contd….
• Loans to SF/MF for purchase of land for agricultural
purposes
• Loans to distressed farmers indebted to noninstitutional lenders
• Loans to PACS, FSS and LAMPS for on lending to
farmers for agri. &allied activities.
• Loans to farmers under KCC Scheme.
• Export credit to farmers for exporting their own farm
produce
ACA-TM-37 (v2.2-20-Nov-10)
Indirect Agriculture
• Short-term loans for raising crops
• MT & LT loans for agri. and allied activities
 Purchase of agri. Impl. and machinery
 Irrigation and other dev. activities
 Allied activities
• Pre-harvest and post-harvest activities,
(viz., spraying, weeding, harvesting, sorting, grading
and transporting of their own farm produce)
• Loans up to 25 lakh against pledge / hypothecation
of agri. produce (including warehouse receipts) for a
period not exceeding 12 months
ACA-TM-37 (v2.2-20-Nov-10)
Indirect Agriculture contd….
• Export credit to corporates, partnership firms and
institutions for exporting their own farm produce
• Loans upto Rs. 5 crore to Producer Companies set up
exclusively by only SF/MF under Part IXA of
Companies Act, 1956 for agri. and allied activities.
• Bank loans to PACS, FSS and LAMPS other than those
covered under direct Agriculture
ACA-TM-37 (v2.2-20-Nov-10)
Other indirect agriculture loans
• Loans up to 5 crore to coop. societies of farmers for
disposing of the produce of members.
• Loans to Custom Service Units managed by
individuals, institutions or organisations and
undertake farm work for farmers on contract basis
• Loans for construction and running of storage
facilities (warehouse, market yards, godowns and
silos), including cold storage units designed to store
agriculture produce/products
ACA-TM-37 (v2.2-20-Nov-10)
Other indirect agriculture loans contd….
• Loans to MFIs for on-lending to farmers for
agricultural and allied activities subject to conditions
• Loans sanctioned to NGOs, which are SHG Promoting
Institutions, for on-lending to members of SHGs
under SHG-Bank Linkage Programme for agricultural
and allied activities. ROI =/< Base Rate + 8%
• Loans sanctioned to RRBs for on-lending to
agriculture and allied activities
ACA-TM-37 (v2.2-20-Nov-10)
Potential Activities
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Fruits and Vegetables
Floriculture
Medicinal and Aromatic Plants
Minor Irrigation Schemes - development & management
Livestock based Schemes - Dairy, Poultry, Fisheries, etc.
Land development activities - soil & water conservation
Mechanisation of Agriculture
Organic Farming
Bio-fuel and TBO seeds
Agro-processing
Seed and Planting material production
Agri-clinic and Agri-Business Centres
Post harvest and Marketing Infrastructure Development, etc.
20
ACA-TM-37 (v2.2-20-Nov-10)
College of
Thank You
ACA-TM-37 (v2.2-20-Nov-10)